What Happens If I Don't Pay Property Taxes in Tennessee?

If you fall behind in property tax payments, you could lose your Tennessee home following a tax sale.

By , Attorney

People who own real property have to pay property taxes. The government uses the money that these taxes generate to pay for schools, public services, libraries, roads, parks, and the like. Typically, the tax amount is based on a property's assessed value. If you have a mortgage on your home, the loan servicer might collect money from you as part of the monthly mortgage payment to later pay the property taxes. The servicer pays the taxes on the homeowner's behalf through an escrow account. But if the taxes aren't collected and paid through this kind of account, the homeowner must pay them directly.

When homeowners don't pay their property taxes, the overdue amount becomes a lien on the property. A lien is a claim against your property to ensure you'll pay the debt; it effectively makes the property act as collateral for the debt. All states have laws that allow the local government to sell a home through a tax sale process to collect delinquent taxes. Accordingly, in Tennessee, your property can be sold at a tax sale to pay off the delinquent tax bill.

But the winning bidder from the sale can't get ownership of your home right away; you'll get some time to get caught up on the overdue amounts before that happens. If you don't pay off the debt during what's called a "redemption period" after the sale, though, you'll lose the property permanently.

How Tennessee Property Tax Sales Work

Many of Tennessee's statutory tax sale provisions depend on the size of the county population or form of government, though, generally, here's how tax sales work. The county will file a tax lawsuit in court and then sell the property at a tax sale, which is a public auction, to satisfy the tax lien. (Tenn. Code Ann. § 67-5-2501).

Notice of the Tax Suit

After the suit is filed, each defendant named in the tax suit must be served by one of the methods authorized in the Tennessee Rules of Civil Procedure, like by providing a copy of the suit and summons to the taxpayer personally or by certified mail, or by constructive service of process (publication). (Tenn. Code Ann. § 67-5-2415, Tenn. R. Civ. P. 4).

Notice of the Tax Sale

Notice of the tax sale must be advertised in a local newspaper or by printed handbills that are posted publicly, whichever the court orders. The sale notice must also be sent to all interested persons, like by certified mail. (Tenn. Code Ann. § 67-5-2502).

Your Right to Cure the Delinquency

You can stop the process by paying the delinquent amounts, including overdue taxes, interest, penalties, and costs. The court will then dismiss the tax lawsuit. (Tenn. Code Ann. § 67-5-2411).

The Tax Sale

At the conclusion of the delinquent tax suit, the county holds a tax sale to sell the property to collect the overdue taxes. If no one bids on the home, the clerk of court will make a bid on behalf of the taxing entity. But the clerk may decide not to bid at the tax sale if environmental risks are present on the property. (Tenn. Code Ann. § 67-5-2501).

After the sale, the purchaser gets a tax deed, subject to the redemption period (see below). (Tenn. Code Ann. §§ 67-5-2501, 67-5-2504).

How to Redeem the Property

Many states give delinquent taxpayers the chance to pay off the amounts owed and keep the home. This process is called "redeeming" the property.

How the Right to Redeem Usually Works

In many states, the homeowner can redeem the home after a tax sale by paying the buyer from the tax sale the amount paid (or by paying the taxes owed), plus interest, within a limited amount of time. Exactly how long the redemption period lasts varies from state to state, but usually, the homeowner gets at least a year from the sale to redeem the property.

In other states, though, the redemption period happens before the sale.

Redemption Period in Tennessee

In Tennessee, the redemption period begins when the court enters an order confirming the sale. Generally, the redemption period is one year. But this time frame may be reduced under some circumstances, like if the taxes are more than five years overdue or if the home is vacant and abandoned. For example, you only get 30 days to redeem if the property is abandoned. (Tenn. Code Ann. § 67-5-2701).

To redeem your home after the tax sale, you must pay the proper redemption amount and file a motion with the court. (Tenn. Code Ann. § 67-5-2701). (Talk to an attorney if you need help preparing and filing a motion to redeem.)

How Much You'll Have to Pay to Redeem Your Home

To redeem your home following the sale, you'll have to pay:

  • the total amount of the delinquent taxes
  • penalty
  • interest
  • court costs, and
  • interest on the entire purchase price paid by the purchaser who bought the home at the tax sale. (Tenn. Code Ann. § 67-5-2701).

Additional Amounts You Might Have to Pay to Redeem

Within ten days after you file the motion to redeem (and make your redemption payment), the court clerk will send a notice to the purchaser who bought the home at the tax sale about your motion. (Tenn. Code Ann. § 67-5-2701).

The purchaser then has 30 days to file a response to the motion seeking reimbursement for certain expenses. For instance, you might have to reimburse the purchaser for:

  • taxes, penalty, interest, and court costs that the purchaser paid
  • reasonable payments the purchaser made for insurance and any improvements to the property
  • reasonable costs the purchaser paid for maintaining the home
  • reasonable expenses the purchaser paid as a result of a judicial or administrative order requiring him or her to immediately bring the property into compliance with applicable building code or zoning regulations
  • reasonable payments the purchaser made for homeowner's association dues or obligations resulting from covenants running with the land which are secured by a lien against the home, and
  • additional interest (Tenn. Code Ann. § 67-5-2701).

If the purchaser doesn't file a response to your motion asking for any additional amounts from you (or to allege that your motion to redeem was not properly or timely filed), the redemption is considered complete and the court will enter an order to this effect. (Tenn. Code Ann. § 67-5-2701).

Does a Mortgage Survive a Tax Sale Process in Tennessee?

Property tax liens almost always have priority over other liens, including mortgage liens and deed of trust liens. (For purposes of this discussion, the terms "mortgage" and "deed of trust" are used interchangeably.) Because a property tax lien has priority, if you lose your home through a tax sale process, mortgages get wiped out. So, the loan servicer will usually advance money to pay delinquent property taxes to prevent this from happening. The servicer will then demand reimbursement from you (the borrower).

The terms of most mortgage contracts require the borrower to stay current on the property taxes. If you don't reimburse the servicer for the tax amount it paid, you'll be in default under the terms of the mortgage, and the servicer can foreclose on the home in the same manner as if you had fallen behind in monthly payments.

Your Servicer Might Set Up an Escrow Account

After demanding repayment of the amount it paid for the taxes, penalties, plus interest (and assuming you repay this tax debt), your servicer will probably set up an escrow account for the loan. Each month, you'll have to pay approximately one-twelfth of the estimated annual cost of property taxes—and perhaps other expenses, like insurance—along with your usual monthly payment of principal and interest. This money goes into the escrow account.

The downside to having an escrow account is that you'll have to make a bigger payment to the servicer each month. On the positive side, having an escrow account saves you from having to come up with a large amount of money when tax bills, and perhaps other bills, are due.

Getting Help

If you're having trouble paying your property taxes, you might be able to reduce your tax bill or get extra time to pay. If you're already facing a property tax sale in Tennessee and have questions or need help redeeming your property, consider talking to a foreclosure lawyer, tax lawyer, or real estate lawyer.

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